Summary
Pegasystems reported third-quarter fiscal 2025 results for the period ended September 30, 2025, with total revenue of $381.35 million, up 17.3% from the prior-year quarter. Gross profit was $275.46 million, up 20.6%. Gross margin was 72.2%, up 2.0 percentage points. Operating income was $14.47 million, up from a prior-year operating loss. Net income was $43.36 million, up from a prior-year net loss. Diluted EPS was $0.24, up from a prior-year loss. Operating margin was 3.8%, up 7.4 percentage points. For the first nine months, revenue was $1,241.5 million, up 23.4% from the prior-year period. Year-to-date operating income was $158.74 million, up from a prior-year operating loss. Year-to-date net income was $158.86 million, up from a prior-year net loss. Year-to-date diluted EPS was $0.86, up from a prior-year loss.
The KPI picture was strongest in cloud and subscription metrics. Total annual contract value reached $1,556.9 million, up 14% year over year. Constant currency ACV was $1,552 million, also up 14%. Pega Cloud ACV rose 27% to $815.4 million. Subscription services ACV rose 17% to $1,112.3 million. Subscription license ACV rose 8% to $444.6 million. Maintenance ACV fell 3% to $296.955 million. Backlog, or remaining performance obligations, was $1,754.5 million, up 18.9% from the prior-year quarter. Deferred revenue was $407.21 million, up 17.1%.
Cash generation and capital returns were a central part of the release. Third-quarter operating cash flow was $56.30 million, up 84.9% from the prior-year quarter. Year-to-date operating cash flow was $346.80 million, up 38.3% from the prior-year period. Year-to-date free cash flow was $338.311 million, up 38%. Capital expenditures were $4.47 million in the quarter, up 45.9%, and $8.48 million year to date, up 72.4%. Non-GAAP net income was $55.164 million, up 59% from the prior-year quarter, and non-GAAP diluted EPS was $0.30, up 58%. The company repurchased 8.7 million shares for $393 million year to date, leaving $347.254 million of repurchase authority as of September 30, 2025. It also pays a quarterly dividend of $0.03 per share.
Management tied the quarter to the AI and Blueprint story. The CEO said the AI strategy is resonating with clients, prospects, and partners, while the CFO pointed to Pega Blueprint momentum and accelerating Pega Cloud ACV growth. The 10-Q explains that Pega Cloud revenue growth came from expanded client adoption, that maintenance revenue declined as clients shifted to cloud offerings, that subscription license revenue rose on several large multi-year contracts, and that consulting revenue increased on more billable hours in international regions. Those drivers support the subscription mix but also show how the maintenance base keeps shrinking.
The risk list remains broad. Forward-looking statements name AI investment execution, revenue recognition timing, public sector demand, key personnel, third-party hosting providers, debt covenants, foreign currency, cyberattacks and security flaws, intellectual property protection, third-party claims including the Appian Corp. litigation, client retention, and growth management. The 10-Q also notes that legal fees tied to proceedings outside the ordinary course are expected to continue. Tax is another moving part: the One Big Beautiful Bill Act reduced forecasted U.S. income tax expense for 2025, though a full valuation allowance remains against U.S. deferred tax assets. Management believes current liquidity is sufficient for at least the next 12 months. No specific next-quarter or full-year revenue or EPS guidance appears in the release, so the outlook remains qualitative and tied to execution on cloud ACV, large subscription license deals, and cost discipline.
Forecast
No forward guidance in this quarter's filings.
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2025 | Q2 FY2025 | QoQ | Q3 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $381.4M | $384.5M | -0.8% | $325.1M | +17.3% |
| Gross profit | $275.5M | $274.9M | +0.2% | $228.3M | +20.6% |
| Gross margin | 72.2% | 71.5% | +0.7 pp | 70.3% | +2.0 pp |
| Research & development | $78.8M | $78.8M | -0.0% | $74.2M | +6.2% |
| Sales & marketing | $140.1M | $147.1M | -4.8% | $127.7M | +9.8% |
| General & administrative | $42.1M | $31.8M | +32.5% | $35.7M | +18.0% |
| Total operating expenses | $261.0M | $257.7M | +1.3% | $240.0M | +8.7% |
| Operating income (loss) | $14.5M | $17.3M | -16.3% | -$11.7M | +224.1% |
| Operating margin | 3.8% | 4.5% | -0.7 pp | -3.6% | +7.4 pp |
| Net income (loss) | $43.4M | $30.1M | +44.2% | -$14.4M | +401.3% |
| Net margin | 11.4% | 7.8% | +3.5 pp | -4.4% | +15.8 pp |
| Diluted EPS | $0.24 | $0.17 | +$0.07 | -$0.17 | +$0.41 |
Risks
Legal fees and related expenses from proceedings outside the ordinary course of business increased $8.8 million in the nine months ended September 30, 2025, and management states it expects to continue incurring additional costs for these proceedings, which include the ongoing Appian Corp. litigation. This is flagged alongside potential legal and financial liabilities and reputational damage in the filing's forward-looking statement disclosures.
Foreign currency fluctuations drove a foreign currency transaction loss in the three months ended September 30, 2025, reversing from a gain in the prior-year period, tied to foreign currency denominated receivables and intercompany balances held by the U.K. subsidiary. Constant currency ACV for the twelve months ended September 30, 2025 was $5 million lower than reported ACV and constant currency backlog was $10 million lower, showing a measurable drag from exchange rate movements.
Maintenance revenue decreased in both the three and nine months ended September 30, 2025 as clients shift to Pega Cloud-based offerings that do not generate maintenance revenue, leaving growth increasingly dependent on Pega Cloud and subscription license revenue, the latter of which management attributes to several large multi-year contracts recognized in the period.
Compensation and benefits rose across selling and marketing (up $10.4 million in the quarter, $22 million year to date), research and development, and general and administrative, where equity compensation and headcount reallocation added $6.5 million in the quarter and $12.4 million year to date. Consulting gross profit percent decreased in the three months ended September 30, 2025 on higher compensation and contracted services, showing margin pressure from labor costs.
The filing calls out variation in demand for products and services, including among clients in the public sector, as a factor that could cause actual results to differ materially, indicating government buying cycles remain a swing factor for bookings and revenue timing.
Management cites reliance on third-party service providers, including hosting providers, as a risk, which is material given that Pega Cloud revenue grew to $184.5 million in the three months ended September 30, 2025 and is the company's largest and fastest growing revenue line. Any hosting outage or service failure would directly hit the cloud subscription base.
Reliance on key personnel and management of growth are listed among the factors that could cause results to differ materially, and the period's higher headcount and incentive compensation spending underscore how dependent current growth is on retaining and hiring skilled staff.
The successful execution of investments in artificial intelligence is called out as a forward-looking risk, reflecting that the company's positioning around Pega GenAI Blueprint and enterprise AI decisioning requires continued investment with uncertain returns.
SaaS KPIs
All quarters →Annual Contract Value (ACV)
Pega Cloud ACV
Constant Currency Backlog
Constant Currency ACV
Subscription Services ACV
Subscription License ACV
Remaining Performance Obligations (Backlog)
Summary, forecast, risks and KPIs are extracted from PEGASYSTEMS INC's SEC filings for Q3 FY2025 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.